Yahoo Finance Here's What To Make Of CCL Industries' (TSE:CCL.B) Decelerating Rates Of Return
What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at CCL Industries' (TSE:CCL.B) ROCE trend, we were pretty happy with what we saw.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for CCL Industries, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = CA$854m ÷ (CA$8.6b - CA$1.5b) (Based on the trailing twelve months to September 2022).
Thus, CCL Industries has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 13% generated by the Packaging industry.
See our latest analysis for CCL Industries
Above you can see how the current ROCE for CCL Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering CCL Industries here for free.
What The Trend Of ROCE Can Tell Us
While the returns on capital are good, they haven't moved much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 46% in that time. 12% is a pretty standard return, and it provides some comfort knowing that CCL Industries has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
The Bottom Line On CCL Industries' ROCE
In the end, CCL Industries has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock has only delivered a 18% return to shareholders who held over that period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.
If you're still interested in CCL Industries it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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